(Adds source, analyst comments, details, background)
MADRID Jan 24 Spain's Telefonica is in
talks to refinance about 5 billion euros ($6.8 billion) of debt
maturing in 2015, sources said on Friday, a move that would
boost its financial muscle ahead of possible acquisitions,
particularly in Brazil.
One of Europe's most heavily indebted telecoms operators is
negotiating with creditors to lower the cost and extend the
maturity of a 3 billion euro loan, three sources with direct
knowledge of the deal said, confirming a report in Spanish
business daily Expansion.
It is also studying paying off up to another 2 billion euros
of debt with proceeds from the sale of its Czech business.
The sources could not confirm, however, that the debt would
be refinanced at a price of 85 basis points above the Euribor
rate from 110 basis points currently, as Expansion wrote.
A source close to the matter said the pricing of the new
syndicated loan, which could take weeks to be agreed, would
likely not be so favourable for Telefonica.
Telefonica declined to comment.
The Spanish group sold a series of assets in 2012 and 2013
aimed at reducing debt and improving credit ratings which
Moody's have at Baa2, two notches above junk.
Its debt at the end of September was 46.1 billion euros,
meeting a year-end target to get it below 47 billion euros three
months ahead of time, and its leverage ratio - debt to operating
income - was 2.3 times, also below a goal of 2.35.
While these metrics have dramatically improved since early
2011, when the firm launched a debt-cutting plan and temporarily
scrapped its dividend, potential leeway for an acquisition in
Brazil or Europe is still limited, analysts say.
"Telefonica has done a very good job over the last 18 months
in terms of deleveraging but we still have a negative outlook on
their ratings," said Carlos Winzer, Moody's analyst.
"This negative outlook means that there is a limited
headroom for additional debt that the company can currently
absorb. If they were to engage in consolidation anywhere, they
would have to be very prudent on how they structure any deal."
Sources told Reuters in November Telefonica could launch a
bid for TIM Brasil, a unit of Telecom Italia
which the Spanish group indirectly controls.
The company is also monitoring closely the likely
consolidation of its Spanish home market, where it is struggling
to reverse declining revenues as cash-strapped customers cut
back on telecoms spending amid economic hardship.
($1 = 0.7310 euros)
(Reporting by Julien Toyer and Tracy Rucinski in Madrid and
Alasdair Reilly in London; Editing by Kenneth Maxwell; and Mark